Reverse the onus on good faith

The problem with the “good faith, fair dealings” issue is that the little guy (franchisees) have to prove that their franchisor played unfair.

  • How about making the franchisor show they acted acted fairly instead?

I think this is a very clever idea and would prevent much bad behavior.

This was a suggestion brought forward by Gerald Nori of Wishart Law Firm LLP in 2000.

I think it’s interesting that in that circumstance the Grange report does a reverse of onus. It says there has to be fair dealing, and if there isn’t fair dealing, then it’s up to the franchisor to show, and I quote, “that the contract between the parties was fair.” In other words, the onus shifts, not from the franchisee to prove they were treated unfairly but to the franchisor to prove that franchisor dealt with this individual fairly. I think that’s an extremely important concept. It goes on to say that the franchisor’s conduct was “equitable in the circumstance.” So you have this onus on the franchisor, at that point, to prove they dealt with this person fairly.

And in response to a question By John O’Toole that this may increase litigation, Mr. Nori was firm in the opposite direction:

I would see it as just the opposite. I would see it as the big guy now having to come into court with all the resources and proving that the treatment was fair under the circumstances. That’s a tremendous onus for the little guy to prove. The other thing is that the documentation is never there. The documentation is always in head office, and you never know whether you’re getting the whole story. So I think that’s an extremely important concept.When I spotted that in the Grange report, I thought, “Boy, there’s something that really would have some meaning in this legislation to equalize the playing field,” because it is tremendously unequal.

Mr. Nori’s reference to the Grange Report under (see under Legislative Approach, (iii.) Contractual v. equitable approach  section) is from 1970:

3. In these dealings also, placing the burden upon the franchisor to prove,
(a) that the contract is fair; and
(b) that the franchisor’s exercise of his rights under the contract is justified in the circumstances.

“Justified” is the absence of opportunism. The test for opportunism is: Would the franchisor have likely made this decision if it were their own assets at risk?

2 Responses to Reverse the onus on good faith

  1. Carol Cross says:

    The opportunism that is inherent in this business model is preceded by the opportunity to advertise and sell these franchises as if there were little ot no risk to the buyers. The ORIGINAL SIN of hiding the risk during the sales process and then disclaiming any promise of success or profits in the written take-it-or-leave-it contracts and disclosure documents sets us the franchisees to be exploited as necessary!

    Would franchisors buy into a business as a franchisee if they knew the business plan failed for 50% or more of “founding franchisees” ???? — Of course not! It is the opportunism and the exploitation of the cheap labor and cheap venture capital of naive franchisees that has made franchising so durable in world economies.

    Everybody knows this —including the courts —except the uninformed new buyers of franchises! The dishonesty in the advertising and sale of franchising can’t be overcome with contract terms concerning good faith that have to be interpreted by the courts.



  2. Ray Borradale says:

    I rarely get surprised when another franchising insight makes me feel like a dill. It happens regularly but this is a very important point. Franchisees are under-funded, under-resourced and under-prepared and yet they have to provide what evidence the franchisor leaves about in a system of judicial bias where the franchisor usually wins by default.

    And franchisees typically didn’t see conflict as a future event and business as usual.


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